Gold in high risk area but possibility of hefty bounce

New York closed at $1,107.50 down $10.20 on Wednesday. In Asia it rose to $1,110.00 before London opened. The LBMA price setting fixed it at $1,107.30 down from $1,118.00 yesterday. The dollar Index was stronger yesterday and rose to 97.94 up from 97.36 at the close of New York. The dollar was stronger at $1.0861 up from $1.0931 against the euro.  In the euro the fixing was €1,019.71 down from €1,023.25.  At New York’s opening gold was trading in the euro at €1,021.56 and at $1,111.15.

The silver price closed at $15.09 down 20 cents over Wednesday’s close. At New York’s opening, silver was trading at $15.07.

Price Drivers

Technically, the gold price is pointing lower. But still we remain in a high risk area with the possibility of a hefty bounce.

Tuesday saw sales from the SPDR gold ETF of 6.199 tonnes making over 16 tonnes sold this week but nothing was sold from the Gold Trust leaving their holdings at 680.105 tonnes and at 160.30 in the Gold Trust. These sales were sufficient to cause such an ongoing fall in the gold price and if they continue, expect more falls.  On top of that the Commercials are short again.

What investors and traders should be working out now is the impact of the arriving Yuan Gold Fixing in Shanghai.

Bear in mind that it is entirely a physical market with only a minor influence from Futures and Options trading. If, for instance, Futures and Options positions are taken out on a delivery basis then whoever is left holding the position will have to deliver.

So who will be left holding the baby as maturity approaches. For sure, speculators who have no intention of delivering will ensure they are out well before maturity. This will lessen the impact of COMEX on the gold price. The arbitrage trade between the two centers will blossom and further squeeze the influence of both London OTC trading and New York’s COMEX.

With gold likely to return to a greater role in a multi-currency system we would expect developed world selling by institutions to be curtailed so as to keep hold of the gold they have.

The acceptance of the Yuan in the basket of currencies making up the SDR will be the trigger for such developments detailed above.

Julian D.W. Phillips for the Gold & Silver Forecasters- www.goldforecaster.com and www.silverforecaster.com

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